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Alcohol commission will study permits, quota system

July 25, 2018

Coming off the successful passage of Sunday sales legislation during the 2018 Indiana legislative session, the Alcohol Code Revision Commission re-convened for the first time on July 18 to chart its course for this year’s study topics. While the commission’s work last year focused on more specific topics like Sunday sales, this year’s group has been charged with studying more general issues, including alcohol permits, the state’s quota structure and the causes and effects of over-consumption.

Led by former Indiana state Rep. Bill Davis – who replaced former state Sen. Beverly Gard as commission chair – the 16-member commission seemed to agree on one central premise during their first meeting: Indiana’s alcohol regulations, as they stand now, are complicated.

With hundreds of different types of permits floating throughout the state and some permittees keeping their permits on the sidelines as a way to gain a competitive advantage, the lawmakers and lay members said it’s difficult for even them to understand the proper way to navigate the state’s alcohol system. How, then, can state leaders expect business owners and the public to know the protocol?

That complexity, coupled with the belief that the state’s Alcohol and Tobacco Commission is understaffed and underfunded, means a clean up of Title 7.1 of the Indiana Code is necessary. But with a broad directive for how it should conduct its business this year, alcohol law experts say the direction the legislative commission will take its work in 2018 is still unknown.

Too many permits?

Laced throughout all of the discussions the commission held at its first meeting was a concern about the growing number of permit types available in Indiana. Reading directly from the Indiana code, Rep. Ben Smaltz, the Auburn Republican who championed Sunday sales legislation in the House of Representatives this year, listed off several different permit types related just to beer: beer dealer – social club, beer retailer – fraternal, beer retailer – social club, beer retailer – stadium and seasonal resort hotel.

“Why don’t we just have a ‘beer dealer?’” Smaltz asked his fellow commissioners.

herriman-bart-mug Herriman

Bart Herriman, an attorney with Clark, Quinn, Moses, Scott & Grahn, LLP and a former ATC chairman, agreed that there are several “atypical” business types that want to serve alcohol but don’t necessarily fall under the parameters of the currently available permits. He gave the example of an art gallery or nail salon, establishments where proprietors often want to offer their guests a drink.

Those types of businesses likely have seating for 25 guests, Herriman said, one requirement for obtaining a restaurnat permit. However, if those establishments don’t have food service available, then they would not qualify for a permit.

Herriman said he would like to see new permits for businesses like movie theaters. He also said he is an advocate of the ATC passing more rules that clarify what business types are covered by what permit types.

“I don’t know if we necessarily need more permits,” Herriman said. “We need more direction as to who can use certain types of permits.”

Similarly, Rep. Terri Austin, D-Anderson, suggested a move away from the practice of creating a new permit type every time a new entity wants to purchase one. And Rep. Matt Lehman, a Berne Republican, said the state should consider grouping available permits into a smaller number of broad categories to make them easier to manage.

Quota control

Tied closely to the permit issue is the question of how the state’s permit quota system should work. Current statute allocates a certain number of permits to a community based on the community’s population.

But lawmakers and municipal leaders who spoke at the meeting said that system can often be a detriment to economic development. Speaking specifically about Berne, Lehman said some local entrepreneurs have expressed an interest in opening an upscale restaurant in the community, but because of the town’s small population, there are not enough alcohol licenses available to serve drinks at that restaurant.

Lehman also noted there is currently only one bar in all of Berne, which had a population of about 4,100 in 2016. He questioned why the quota population limits were set where they are and suggested a review of those limits.

webb-mark-mug Webb

Another common issue with the quota system is the concept of keeping purchased permits in escrow. Mark Webb, a former ATC executive secretary and hearing judge, said it’s common for large retailers or restaurant chains to buy up all of the available permits in a community and keep them out of the market as a way of stifling potential competition.

Similarly, Herriman said developers and landlords often purchase restaurant permits and keep them in escrow as a way of incentivizing business to use their facilities. If those businesses agree, then the developers will transfer the permits to them.

Current law allows permittees to hold their permits in escrow for five years, a change from the previous two-year maximum. Austin said she and Smaltz have had discussions about lowering the escrow limit again, though they have disagreed over whether the maximum time should be two or three years.

alcohol-factbox.pngBusiness liabilities

The final topic of discussion at the July 18 meeting was the issue of over-consumption. Austin, who put forth the language that charged the commission with studying over-consumption, said she thinks it’s important for the state to understand how its decisions affect issues such as drunken driving and sexual assault.

For example, Austin noted the hours for alcohol sales have been extended in recent years. Has that extension had any negative consequences, such as increased sexual assaults at bars? That’s a question Austin thinks should be answered.

Similarly, Smaltz said Indiana has one of the most available carryout laws in the country, a fact that could contribute to societal ills if not properly regulated. To that end, he said the Legislature should ensure Title 7.1 isn’t too expansive.

In addition to societal effects, Webb said over-consumption is an issue that businesses do, or should, care about as well. If a business over-serves a patron and that patron subsequently kills someone with their car, then the business could be held liable the Indianapolis attorney said.

Anticipated results

Though Herriman and Webb both said they cannot predict what the Alcohol Code Revision Commission will recommend to the Legislature, or how the Legislature will act on those recommendations, they each had ideas about changes they’d like to see in the state’s alcohol regulatory scheme.

Webb, for example, thinks the process of obtaining a permit should be streamlined. He pointed to an example of a client who wanted to open a lakefront business that served alcohol and would only be open during the summer months. However, because the hearing board was only available at certain times, the client was not able to obtain their permit in enough time to open their business when they had planned.

Returning to the escrow issue, Herriman said it might be a good idea for the ATC to create a separate permit type for developers who want to attract businesses to their properties, rather than allowing the developers to purchase restaurant permits. He also said it would be good to have additional guidance on when “atypical” business models can furnish alcohol to their customers without doing so “negligently.”

The commission is scheduled to meet again next month to continue developing its recommendations.•

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